Fundamentals of corporate finance Exam Questions with Correct Answers| New Update with
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capex decisions capital expenditure decision:decisions to invest in tangible/intangible assets
capex Capital Expenditure-land,property, equip, long term real assets
free cash flow Cash available once the firm has covered it's capital expenditures
financing decisions concerned with the ways in which firms obtain and manage long term
financing to acquire and support their productive assets(finance or pay for assets)
-the form and amount of financing a firm's investment, how to get $ in the door, should I issue
debt or isssue equity?
real assets Assets used to produce goods and services, not financial
asset future benefit
economic resource
future economic value will produce profit/value in the future
financial asset financial claims to income generated by real assets
-bonds
corporation A business owned by stockholders who share in its profits but are not
personally responsible for its debts
-organized as a seperate legal identity owned by stockholders
"a nexus of contracts"
,A distinct legal entity, owned by shareholders
Organized under 'articles of incorporation'
Limited liability - shareholders not personally responsible for debts of corporation
May be 'private' or 'public' (latter has shares issued and trading on exchanges)
May be 'closely held,' or widely dispersed shareholders
Shareholders elect a board of directors, who appoint and monitor managers
"Separation of ownership and control" - shareholders defer to board, managers
Managers may quit, or be replaced, and corporation continues
Downside? "Agency costs"
Berle and Means, The Modern Corporation and Private Property
Two other downsides
Expensive legal/compliance machinery
"Double taxation" - corporate income taxed, and so are dividends and capital gains for
shareholders
llimited liability the owners of a corp are not personally liable for obligations of the corp- but
can still be sued for personal decisions
, cfo chief financial officer-leader, the most important
leads financial decisions and execution
oversees offices of treasurer, controller
Oversees whole financial staff
Close contact with CEO, other senior execs
Key external voice for corporation
treasurer responsible for financing, cash management, and relationshp with banks and
other instit. internal/external manage.
controller internal statements- responsible for budgeting, taxes, and accounting
oppurtunity cost of capital minimum acceptable rate of return on capital investment- the
rate of return that investions could earn in finance. markets, look at proj. of similar risk, return
agency problems managers are agents for shareholders, but the managers may act in their
own interest
stakeholder anyone with a financial interest in the firm
financial market market where securities are issued and traded
primary market market for the sale of new securities by corporations, A financial market in
which new issues of a security are sold to initial buyers.
Guaranteed Success
capex decisions capital expenditure decision:decisions to invest in tangible/intangible assets
capex Capital Expenditure-land,property, equip, long term real assets
free cash flow Cash available once the firm has covered it's capital expenditures
financing decisions concerned with the ways in which firms obtain and manage long term
financing to acquire and support their productive assets(finance or pay for assets)
-the form and amount of financing a firm's investment, how to get $ in the door, should I issue
debt or isssue equity?
real assets Assets used to produce goods and services, not financial
asset future benefit
economic resource
future economic value will produce profit/value in the future
financial asset financial claims to income generated by real assets
-bonds
corporation A business owned by stockholders who share in its profits but are not
personally responsible for its debts
-organized as a seperate legal identity owned by stockholders
"a nexus of contracts"
,A distinct legal entity, owned by shareholders
Organized under 'articles of incorporation'
Limited liability - shareholders not personally responsible for debts of corporation
May be 'private' or 'public' (latter has shares issued and trading on exchanges)
May be 'closely held,' or widely dispersed shareholders
Shareholders elect a board of directors, who appoint and monitor managers
"Separation of ownership and control" - shareholders defer to board, managers
Managers may quit, or be replaced, and corporation continues
Downside? "Agency costs"
Berle and Means, The Modern Corporation and Private Property
Two other downsides
Expensive legal/compliance machinery
"Double taxation" - corporate income taxed, and so are dividends and capital gains for
shareholders
llimited liability the owners of a corp are not personally liable for obligations of the corp- but
can still be sued for personal decisions
, cfo chief financial officer-leader, the most important
leads financial decisions and execution
oversees offices of treasurer, controller
Oversees whole financial staff
Close contact with CEO, other senior execs
Key external voice for corporation
treasurer responsible for financing, cash management, and relationshp with banks and
other instit. internal/external manage.
controller internal statements- responsible for budgeting, taxes, and accounting
oppurtunity cost of capital minimum acceptable rate of return on capital investment- the
rate of return that investions could earn in finance. markets, look at proj. of similar risk, return
agency problems managers are agents for shareholders, but the managers may act in their
own interest
stakeholder anyone with a financial interest in the firm
financial market market where securities are issued and traded
primary market market for the sale of new securities by corporations, A financial market in
which new issues of a security are sold to initial buyers.
